AI in tax and accounting

You’d be hard pressed these days to find anyone who hasn’t heard of artificial intelligence (AI). Tax and accounting firms are no exception. But just because firms have heard about AI doesn’t mean they’ve implemented it.

Why the hesitation? There are several reasons: lack of understanding, fear of being replaced, concerns over data security … the list goes on. While those reasons are justified—and we’ll cover why you don’t really need to worry about them—there may be something that firms aren’t considering: the staffing shortage in the tax and accounting profession.

Between fewer accounting graduates and those sitting for the CPA exam, AI can help fill the void. How? By improving efficiency, automating repetitive tasks, delivering more value to clients, and helping firms scale—without the need for additional staff or replacing your current team. It’s all about augmenting their capabilities.

So let’s talk about AI in tax and accounting: what it actually does, how it works, and how you can intentionally approach its implementation within your firm.

What AI can do in your firm

When it comes to tax and accounting software, AI’s biggest selling point is that it works behind the scenes to help streamline your firm’s operations. This allows you to focus on more strategic, high-value work … advisory services, anyone? Here are several key functions that AI can perform in your firm:

• Automated collection and organization. AI can automatically extract data from various sources, including financial statements, receipts, and tax documents. The data is then organized into the appropriate places for review, minimizing manual input and reducing the chance of human error.
• Document request lists. One of the most time-consuming tasks is gathering the necessary documents from clients. AI streamlines this process by creating intelligent document request lists based on predefined rules and previous engagements. This ensures the right documents are requested at the right time without the burden of manual tracking.
• E-signatures. Have documents that require client approval or signatures? AI’s got you covered here, too. Once a document is ready, AI can automatically send it to the client for an e-signature, track its status, notify you and your client when the signature is completed, and seamlessly identify and sort it with no further manual intervention.
• Client questionnaires. Gathering information from clients can be a lengthy process, but AI simplifies this by generating smart client questionnaires that are dynamically customized based on a client’s previous responses or the nature of the engagement. This helps reduce unnecessary follow-up questions and ensures you get the right information upfront.  
• Notifications and reminders. Missing a deadline is a worst-case scenario for firms. AI helps you stay on top of deadlines—think tax filing dates, quarterly reports, compliance submissions—by sending automated reminders to ensure nothing slips through the cracks.

AI doesn’t just automate tasks—it transforms the way you work. AI helps manage workflows, giving you more time to focus on what matters: providing insightful, high-level advisory services to your clients.

Related: How AI Is Revolutionizing the Tax and Accounting Profession

How AI actually works

Now that we know what AI can do in your firm, let’s explore how it works within accounting software. At its core, AI is driven by a combination of technologies, such as machine learning and natural language processing. These technologies enable AI to perform tasks that typically require human intelligence, but they can complete these tasks with great speed, efficiency, and accuracy.

• Machine learning (ML) involves teaching a computer to learn from vast amounts of data, and make decisions or predictions based on patterns it detects. In the tax and accounting space, ML algorithms analyze historical financial data, transactions, and, sometimes, client interactions to detect patterns and make recommendations. It can also detect anomalies in financial transactions, catching potential errors, misclassifications, or even fraudulent activities.
• Natural language processing (NLP) enables machines to understand and process human language. For firms, this means it comprehends text from unstructured documents such as emails or contracts. NLP also allows AI to automatically recognize the type of document. Examples include tax returns, receipts, and reports. Then, NLP organizes these appropriately in the system.

In many cases, AI technology operates via large language models (LLMs), advanced models trained on massive datasets. These models allow accounting software to perform sophisticated tasks, such as classifying information or predicting outcomes with minimal supervision. 

Practical use case: A tax accountant’s day with AI

Let’s check out a typical day in the life of a tax accountant leveraging AI in their accounting tech stack.

Morning: Document collection and organization

It’s the start of the day; instead of spending the morning chasing down financial statements, tax forms, or other critical documents, AI has already done the heavy lifting. It automatically sent document request lists tailored to each client’s needs, and clients have already begun to respond and upload their documents.

As that happens, AI analyzes and sorts them in real time, flagging missing items or inconsistencies. You can see all the documents that have been collected and ready for review in a centralized dashboard. No more manually tracking and sorting through folders.

Mid-morning: tax preparation

Imagine it’s busy season and time to work on tax returns. Because of AI’s data extraction and organizational capabilities, all the relevant information—receipts, W-2s, 1099s, and other tax-related documents—has been compiled and sorted.

AI identifies potential tax deductions or credits, and flags areas of further concern; for example, when income reported is significantly higher or lower than the previous year. This allows you to focus on the issues before filing, and ensures all required forms and schedules are attached and correctly filled out, reducing the likelihood of errors, delays, or penalties.

After lunch: automated client communication and eSignatures

When it’s time to file a client’s tax return, AI sends out requests for e-signatures, tracks the status of each request, sends reminders to clients who haven’t signed yet, and keeps you updated—all with zero manual follow-up required. All the back-and-forth with the client is eliminated, while you get to focus on more meaningful client interactions instead of administrative work.

Mid-afternoon: notifications and workflow management

AI doesn’t take a break. It’s working in the background, sending automated reminders and notifications about upcoming deadlines, missing documents, and tasks that need your attention. Have taxes due next week for a client? AI’s already on it. The client’s income data has been analyzed and their tax liability projection is ready. All you have to do is review it and send it for client approval.

While this happens, AI monitors your ongoing tasks and projects using intelligent workflows to ensure everything runs smoothly. If a client submits a new document, it gets sorted and organized automatically, and you get an alert. You no longer have to manually track engagements, which helps you reduce time-consuming tasks and stay on top of your work.

AI’s real-world benefits for you and your firm

If you haven’t seen the value of AI in tax and accounting quite yet, let’s talk about three pain points: 

1. It reduces manual work. AI is a rockstar. It automates repetitive tasks such as data entry, document collection, and deadline tracking. This frees up your time to focus on higher-value work, such as advising clients or analyzing financial trends.
2. It mitigates staffing challenges. The shortage of qualified accountants is felt everywhere, and many firms struggle to meet growing client demands. AI helps bridge the gap by taking over routine tasks, allowing you to serve more clients with fewer resources.
3. It enhances client collaboration. With AI, the traditional back-and-forth required to get the documents you need is a thing of the past. AI-driven workflows improve communication and collaboration, getting you the documents and signatures you need without manual intervention.

How AI should be approached

Implementing AI in your practice may seem overwhelming, but it doesn’t have to be. The key is to approach it one process at a time. Here’s how.  

1. Start small. The first key to approaching AI is to focus on one area at a time. Identify a single area where AI can provide immediate benefits. Maybe it’s document collection or e-signatures. Choose one solution and test it out. Once you feel comfortable with the current solution, add another. By focusing on incremental adoption, AI becomes a natural part of your workflow—instead of a disruption.
2. Create a learning culture. When you approach AI in your firm, you’ll need a shift in mindset from your entire team. AI can seem intimidating at first, so offer training programs or workshops that teach your staff how to use AI tools effectively. And allow for a collaborative environment where employees can openly share insights and ask questions. The more comfortable and knowledgeable they are, the more likely they’ll be open to using AI.
3. Focus on pain points. While using the same AI as everyone around you may seem like the best thing to do, their pain points may not match your pain points. Take the time to assess what challenges your firm faces, such as repetitive tasks (data entry and document management), deadlines, or client communications. Choose a tool—remember, just one at first—that directly addresses the issue.

Don’t be afraid to ask for help when you need it. Start slow, monitor the results of each implementation, and gradually expand AI usage as you and your staff become more comfortable with the technology. 

Unlock the benefits of AI at your firm

AI isn’t going anywhere. It’s not going to replace you or your job. Think of AI as the secret weapon you have in your back pocket that automates time-consuming and repetitive tasks, giving you the time back in your day to focus on what truly matters: building deeper client relationships.

Remember, the real benefit of AI in tax and accounting is that it doesn’t take away the human element—it enhances it.

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